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What is Takeover?
A takeover refers to the acquisition of one company by another, usually through the purchase of a controlling share of the target firm’s stock. Takeovers can be friendly or hostile and are a major mechanism through which companies expand, diversify, or restructure.
Definition
A takeover is the purchase of a company’s majority ownership or controlling interest by another business entity.
Key Takeaways
- Takeovers allow companies to expand operations, enter new markets, or acquire strategic assets.
- They can occur with or without the consent of the target company’s management.
- Takeovers play a significant role in corporate restructuring and competitive dynamics.
Understanding Takeover
Takeovers are a core component of mergers and acquisitions (M&A), representing a direct attempt by one company (the acquirer) to assume control of another (the target). Control is typically gained by purchasing more than 50% of the target company’s voting shares.
Takeovers vary based on strategy and relationship dynamics. In a friendly takeover, both companies negotiate terms, align on valuation, and pursue mutual benefit. In a hostile takeover, the acquiring company attempts to bypass management by appealing directly to shareholders or using mechanisms like tender offers.
Takeovers can reshape industries and influence market power dynamics. They often lead to operational consolidation, cost reduction, and increased competitive advantage—but may also cause disruptions for employees, customers, and suppliers.
Formula (If Applicable)
There is no single formula for takeovers, but several financial metrics guide valuation:
- Offer Price per Share = Acquisition Price / Number of Shares Purchased
- Acquisition Premium = Offer Price − Market Price
- Control Premium = Extra value paid for voting control
Real-World Example
In 2016, Microsoft acquired LinkedIn for $26.2 billion in one of the largest tech takeovers in history. Through the deal, Microsoft expanded its ecosystem into professional networking and data-driven market insights.
Importance in Business or Economics
Takeovers drive corporate evolution by enabling:
- Expansion into new markets
- Acquisition of innovative technologies or talent
- Economies of scale
- Elimination of competition
- Improved financial performance through synergy
However, unsuccessful takeovers can result in cultural clashes, unexpected costs, or regulatory challenges.
Types or Variations (If Relevant)
- Friendly Takeover — Conducted with approval from the target company.
- Hostile Takeover — Pursued without management’s support.
- Reverse Takeover — Private company acquires a public company to gain listing.
- Leveraged Buyout (LBO) — Acquisition funded largely by debt.
- Backflip Takeover — Acquirer becomes subsidiary of the target.
Related Terms
- Merger
- Acquisition
- Tender Offer
Sources and Further Reading
- Investopedia – Takeover: https://www.investopedia.com/terms/t/takeover.asp
- Corporate Finance Institute – Types of Takeovers: https://corporatefinanceinstitute.com/resources/knowledge/deals/takeover/
- Harvard Business Review – M&A Insights: https://hbr.org/topic/mergers-and-acquisitions
Quick Reference
- Takeover = Gaining control of another company through share acquisition.
- Can be friendly or hostile.
- Common tool for corporate growth and strategic realignment.
Frequently Asked Questions (FAQs)
What triggers a takeover?
Opportunities such as undervaluation, strategic alignment, or market expansion.
How does a hostile takeover work?
The acquiring firm bypasses management and appeals directly to shareholders.
Are takeovers always beneficial?
Not necessarily, success depends on integration quality, valuation accuracy, and strategic fit.
